The zero-leverage phenomenon in European listed firms: A financing decision or an imposition of the financial market?

This article provides empirical evidence on the zero-leverage phenomenon for a sample of European listed firms period 1995–2016. It is shown that there are two types with zero leverage: financially constrained face obstacles in obtaining external finance, as predicted by financial constraints hypothesis; and unconstrained maintain leverage consequence financing decision, which supports flexibility hypothesis. The also influenced system prevails each country, being boosted (inhibited) market-based (bank-based) systems, country’s macroeconomic conditions, recent sovereign debt crises increasing propensity countries. We find hypothesis seems to be more important systems approach did not gain importance during crisis period. Our results robust use alternative measures conservatism, explanatory variables, econometric methods their validity when we allow endogeneity firm size dividend payments. JEL CLASSIFICATION G32